Established by the Financial Stability Board in 2017, the TCFD aims to improve and increase reporting of climate-related financial information. It sets out recommendations for firms on disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. While adopted by some Irish firms, it is not mandated. However, in the UK, the TCFD is mandatory for large businesses that will be required to report for accounting periods on or after 6 April 2022.
Disclosures are primarily related to climate-related risks and opportunities facing the business and are recommended to encompass four main elements:
- Governance
This element concerns the organisation’s governance around climate related risks and opportunities. This should describe (i) the board’s oversight and (ii) management’s role in assessing and managing of climate-related risks and opportunities.
- Strategy
The strategy element relates to the actual and potential impacts of climate-related risks and opportunities on an organisation’s businesses, strategy and financial planning, where such information is material. Disclosures should describe the climate-related risks and identified over the short, medium, and long term, and the potential impact thereof on business, strategy, and financial planning. They should also describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
- Risk Management
This element concerns how organisations identify assess and manage climate-related risks. Disclosures should describe the organization’s processes for (i) identifying and assessing, and (ii) managing climate-related risks, as well how these processes are integrated into the organisation’s overall risk management.
- Metrics and targets
The fourth element regards disclosure of metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Specifically, disclosures should include the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. They should also include Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Lastly, they should describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.
The GRI has issued general guidance on implementing its recommendations as well as sector-specific guidance for financial services firms and non-financial groups in sectors including energy, transportation, materials & buildings, agriculture, food & forest products.